Tenaga Nasional Berhad - Below Expectation

Date: 01/03/2019

Source  :  PUBLIC BANK
Stock  :  TENAGA       Price Target  :  14.12      |      Price Call  :  HOLD
        Last Price  :  13.76      |      Upside/Downside  :  +0.36 (2.62%)

Tenaga Nasional (TNB) reported a net loss of RM134.3 in 4QFY18. Stripping out forex loss of RM418.3m, YTD impairment of its associates of GMR and Gama Enerji of RM304.7m and RM498m respectively, impairment of financial guarantee made to Gama Enerji of RM269.9m, provision for doubtful debt of RM170m and net salary adjustment of RM80m due to MFRS119, its FY18 reported a core net profit of RM5.46bn. The results were below our and consensus’ expectations at 80% and 88% of full year estimates respectively. The discrepancy in our forecast was due to other regulatory adjustment in revenue of RM639.8m as well as lower-than-expected performance of its associates. We adjust downwards our numbers for FY20F by 4% on lower contribution from associates. We also reduce our terminal growth to 1% (previously 1.5%) due to uncertainty over power sector reform moving forward. As a result, our target price is reduced to RM14.12 (previously RM16.86), hence we downgrade our call on TNB to Neutral. TNB proposed a final single-tier dividend of 23 sen during the quarter, bringing full year dividend to 53 sen.

  • FY18 revenue. TNB reported lower QoQ revenue in 4QFY18 to RM12.5bn (-4% QoQ) owing to lower sales of electricity (-2% QoQ) and other regulatory adjustments of RM639.8m. To recap, during the first regulatory period (RP1), TNB was allowed to keep the revenue due to higher average selling price compared to base tariff from favourable change in customers mix. However, for RP2 (2018-2020), TNB is required to return the excess in revenue collected to the KWIE fund. Moving forward, any regulatory related adjustment will be provided for monthly basis. This brings its full year FY18 revenue to RM50.4bn. The electricity demand growth in FY18 was at 2.6%, with industrial and domestic demand growing at 4.5% and 2.8% respectively.
  • FY18 net profit. In 4QFY18, operating expenses increased by 2.6% QoQ to RM12.1bn due to higher non-generation costs (+13.5% QoQ). This was due to one-offs expenses; (1) impairment of financial guarantee made to Gama Enerji of RM269.9m, (2) impairment of GMR of RM304.7m, but partially off set by lower staff costs owing to; (3) net salary adjustments of RM80m due to MFRS119, and (4) staff cost capitalised of RM200m. Meanwhile, its generation cost showing a decline of 3.5% QoQ mainly contributed by lower fuel costs (-7.9% QoQ). This was due to improvement in coal plants performance QoQ, hence lower gas consumptions, coupled with lower average coal price during the quarter (Figure 1). Coal price was averaging at RM411.14/MT in 4QFY18 (vs 3QFY18: RM422.60/MT). Excluding one-off items, core net profit for FY18 was still lower at RM5.46bn (FY17: RM6.9bn) mainly due to other regulatory adjustment of RM0.75bn that was allowed to keep in FY17 due to RP1, higher depreciation from Manjung 5, and share of associates losses of RM209.9m recognised in FY18.
  • Dividend. The Group proposed a final single tier dividend of 23 sen for the quarter, bringing full year dividend to 53 sen, translating to a payout ratio of 56% of its core net profit.

Source: PublicInvest Research - 1 Mar 2019

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